Investment has recently become a prime element on the ladder of a safe and secure future. Well, I cannot agree more. The significance seems to be rising every single day and it appears like a mammoth of a task to process so much that is available on the internet. With internet inundated with massive amount of information and plethora of guides pertaining to low risk, high return investment; understanding whether it is really possible or not, is crucial.
Most prospective investors tend to crave for low risk, high returns aspect but fail to comprehend the technicalities required. It is important for investors to seriously consider one thing, call it accepted wisdom; if the return is real the risk is always perpetually real. Clarity on this aspect cannot be skipped when it comes to wise investing. Being oblivious to this fact could be dangerous. Every investor is different; with different levels of risk tolerance, financial goals, holding period and return expectations involved. Therefore the returns and risks too are going to vary, without an iota of doubt.
Needless to say, there's no such thing as a risk free investment and every situation in the sphere of investment is bound to be unique. Investors have to analyze their own investing necessities clearly enough since investment decisions are based on a wide range of factors. It is a given, that the market will punish some and reward some so it would be pointless for investors to engage in trivial comparisons of return on investment. The investing arena is neither black nor white. This points to a fact that it is possibly indefinite and grey; considering there is no such thing in existence which can be in charge of the market and tweak it according to your likes and dislikes. The investors must be willing to accept this reality before getting their hands dirty as market cannot be timed.
To put things in perspective, let's understand various types of investments. Stocks, bonds and cash are the 3 major avenues for parking your money. Stocks carry the highest amount of risk as compared to bonds and cash. They are market oriented, hence the high risk. The annualized returns provided by stocks are also higher. Asset allocation by an investor, aggressive or moderate will essentially depend on the risk appetite. A young investor with no family responsibilities and a bright career ahead can afford to invest in high risk instruments whereas a 55 year old or a 60 year old preparing for his/her retirement will not readily dive deep, into the ocean of uncertainties and risks. It needs a bit of effort and research on part of investors to determine their risk tolerance and plan their target asset allocation accordingly.
The below graph sums it up well:
The disclaimer put up before any advertisement makes a lot of sense as it simply tells the truth. It is pretty much the same as a warning on your TV screens and elsewhere against smoking. Smoking is deadly and injurious to health; so you may go ahead if you are ready to brave the health hazard. The risk taking capacity predominantly dictates everything. Yes, that's right, investments will always be subject to market risks and no investor can escape that gamble. It depends on how effectively different investors deal with downturns, devise and execute their fall back plans to stay well insulated from market shocks. Strong profits if earned can be very rewarding but investors must also learn to take losses in their stride. Being patient and pragmatic is the key here. You either survive the fall or succumb to it. A rule of the thumb is to keep striving in order to strike a golden balance in the risk- return relationship with a well thought out strategy. There is no escape and there are no shortcuts either.